Crude Oil Prices Surge Amid Sanctions and Production Delays
Market Reaction to US Sanctions and OPEC+ Plans
January WTI crude oil (CLF25) closed up +1.84 (+2.70%) on Tuesday, while January RBOB gasoline (RBF25) rose by +0.0452 (+2.36%).
Prices for crude oil and gasoline rose moderately on Tuesday, largely due to a weaker dollar. Crude oil extended its gains after the US announced additional sanctions on Iranian oil, which is expected to reduce global supplies. Support also came from OPEC+ delegates confirming plans to delay production increases for another three months.
US Sanctions and Global Supply Concerns
On Tuesday, crude oil rallied following US Treasury sanctions that targeted 35 entities and vessels involved in the illicit transport of Iranian oil. This action is anticipated to decrease global crude supplies.
The reduction in crude oil held on tankers worldwide is seen as positive for oil prices. Vortexa reported a decline of -2.5% in crude oil stored on stationary tankers, with a total of 68.74 million barrels as of November 29.
OPEC+ plans to delay a proposed increase of +180,000 barrels per day (bpd) from January until the second quarter of 2025, to be discussed in a meeting on December 5. Previously, the group had intended to restore 2.2 million bpd of output through monthly increments up until late 2025. The UAE is set to gradually increase production by an additional 300,000 bpd, acknowledging its enhanced production capacity. Notably, OPEC’s November crude production increased by +120,000 bpd to 27.02 million bpd.
Geopolitical Tensions Impact Prices
The ongoing conflict between Ukraine and Russia is also contributing to higher crude prices. Recently, Russia launched a hypersonic missile into Dnipro, and President Putin has warned of possible strikes on “decision-making centers” in Kyiv, escalating tensions further. An updated nuclear doctrine permits Russia to respond with nuclear weapons if faced with a conventional attack.
China’s Demand Weakens, Affecting Market Outlook
On the other hand, China’s weakening demand could weigh on prices. According to Bloomberg, apparent oil demand in China fell -5.4% year-over-year in October to 14.07 million bpd, with a year-to-date decline of -4.03% to 14.00 million bpd. As the world’s second-largest crude consumer, China’s reduced demand presents a bearish signal for the market.
Russian Exports and Inventory Data
Additionally, an increase in Russian crude exports is a bearish factor as well. Weekly data from Bloomberg indicates that Russian crude exports rose by +570,000 bpd to 3.36 million bpd during the week ending December 1.
Expectations suggest that the weekly EIA report would show a decline in crude inventories of -1.82 million barrels, with gasoline supplies down by -678,000 barrels.
Last week’s EIA report also revealed that US crude oil inventories as of November 22 were -4.5% below the five-year seasonal average. Gasoline inventories were -3.5% lower and distillate stocks were -5.1% below the average. US crude oil production rose +2.2% week-over-week to 13.49 million bpd, just shy of the record high of 13.50 million bpd earlier this month.
Baker Hughes reported a decrease of -2 oil rigs in the week ending November 29, bringing the total to 477 — a tie for the lowest level in 2.75 years. There has been a significant drop from the 627 oil rigs in December 2022.
On the date of publication, Rich Asplund did not have any direct or indirect positions in any of the securities mentioned in this article. All information and data in this article are intended for informational purposes only. For more details, please view the Barchart Disclosure Policy here.
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